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Stumped Between ITR-1 and ITR-2? Here's How to Choose the Right Income Tax Return Form for Your Financial Situation!

Stumped Between ITR-1 and ITR-2? Here's How to Choose the Right Income Tax Return Form for Your Financial Situation!

Are you a salaried individual confused between ITR-1 and ITR-2? While ITR-1, Sahaj, is straightforward, many mistakenly file it when ITR-2 is required. This FilingWorld.in guide clarifies the key differences, helping you understand when to choose ITR-2 over ITR-1 for accurate tax filing.

ITR-1: Your Simple Salaried Friend

ITR-1 is the most straightforward form, ideal for resident individuals with total income up to Rs. 50 Lakh. This typically covers salary, income from one house property, other sources (like interest), and agricultural income up to Rs. 5,000. It's simple, but with limitations.

When ITR-2 Becomes Your Go-To Form

Now, let's get to the crux. You must opt for ITR-2 if your financial landscape includes any of the following:

  • Multiple House Properties: Owning and earning rental income from two or more properties, or even just owning a second property, mandates ITR-2.
  • Capital Gains: Income or losses from selling shares, mutual funds, or property require ITR-2, as ITR-1 doesn't accommodate this.
  • Foreign Income or Assets: Income from sources outside India (e.g., foreign salary) or holding foreign assets means ITR-2 is your correct choice.
  • Director or Unlisted Shares: Being a Director in any company or owning shares in an unlisted company at any point rules out ITR-1.
  • Agricultural Income > Rs. 5,000: If your agricultural income exceeds Rs. 5,000, you need to file ITR-2.
  • Non-Ordinary Resident/Other Specific Incomes: This also applies if you are a Non-Ordinary Resident or have income from lottery/horse racing.

The Bottom Line: Choose Wisely!

In essence, if your income streams are more complex than just a basic salary and one rented house, or if you have specific investments or foreign connections, ITR-2 is likely for you. Choosing the correct ITR form is crucial to avoid discrepancies. If unsure, consult a tax professional. FilingWorld.in is here to simplify your tax journey!

FAQs
The main difference lies in who can use them. ITR-1 (Sahaj) is for resident individuals with a total income up to Rs. 50 lakh and income from limited sources. ITR-2 is for individuals and Hindu Undivided Families (HUFs) who do not have income from a business or a profession but have more complex income sources.
ITR-1 is for resident individuals with income from salary, one house property, and other sources (like interest). Agricultural income up to Rs. 5,000 and limited long-term capital gains (LTCG) from the sale of listed equity shares or mutual funds are also permitted.
ITR-2 is for individuals and HUFs with income from capital gains (e.g., from the sale of property, mutual funds, or shares), more than one house property, or foreign assets/income. It also applies to directors of a company and individuals who hold unlisted equity shares.
Yes, but only in a very limited case. You can use ITR-1 if you have long-term capital gains (LTCG) from the sale of listed equity shares or mutual funds, up to a maximum of Rs. 1.25 lakh. For any other capital gains (e.g., from property or short-term gains), you must use ITR-2.
You must file ITR-2. ITR-1 is not applicable for individuals with foreign income or foreign assets.
No. If you have income from a business or a profession, you must use ITR-3 (if you have other complex income sources) or ITR-4 (Sugam) (if you are eligible for the presumptive taxation scheme).